Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive
Speaker 1: from coast to coast with Caroline Hide in New York
Speaker 1: and ever though in San Francisco.
Speaker 2: This is Bloomberg Tech coming up. Intel plunges after the
Speaker 2: chip maker warned its struggling with manufacturing problems.
Speaker 3: Fas China's largest tech firms get an initial green light
Speaker 3: from Beijing to start preparing orders for videos two hundred.
Speaker 2: AI chips, and after years of drama comes to an
Speaker 2: end as TikTok and its Chinese parent Byte Dance close
Speaker 2: a deal to operate in the US.
Speaker 3: Let's look right now though at US markets as we
Speaker 3: close up this week, a volatile training week to say
Speaker 3: the very least consumed by geopolitics to start, and we
Speaker 3: end with a little bit of green on our screens.
Speaker 3: For the nasat one hundred, we're up five ten percent,
Speaker 3: six tenths. You can see the clallback that happened post
Speaker 3: Davos speech and post President Trump really taking his line
Speaker 3: of sight away from Greenland by force at least. But ed,
Speaker 3: it's all about the chip stocks today and you're digging
Speaker 3: into them.
Speaker 2: So Intel is down a lot, and it's because of
Speaker 2: a sales outlook for the current period that at the
Speaker 2: midpoint was below investor expectations, on track for its biggest
Speaker 2: drop since August of twenty twenty two. But remember this
Speaker 2: was a stock that just in the few weeks we've
Speaker 2: had of twenty twenty six, was up forty seven percent
Speaker 2: as of yesterday's close. The problems are in supply, but
Speaker 2: specifically in execution. Let's get to Bloomberg's chips reporter Ian
Speaker 2: King and Ian You and I spoke with Intel's CEO
Speaker 2: Lit Bhutan on the telephone. He was very clear that actually,
Speaker 2: when they say there are supply issues, a lot of
Speaker 2: this was how Intel tried to manage it. They have
Speaker 2: yield and they have production problems. Explain that to us.
Speaker 4: Yeah, So those are a couple of things here. The
Speaker 4: first was that they basically did believe that the demand
Speaker 4: for some of their best products, which would be the
Speaker 4: server chips.
Speaker 2: Was there.
Speaker 4: Didn't build inventory, didn't assign supply to that, so that
Speaker 4: didn't help. But then the production, which could help you
Speaker 4: out where you get more chips for a production room,
Speaker 4: what's called yield. If that had been better, they would
Speaker 4: have had more chips and been able to meet more supply.
Speaker 4: So they've really left quite a lot of orders on
Speaker 4: the table here and obviously that is not good.
Speaker 3: What does it say about the future of its fab
Speaker 3: business in if you're a solo.
Speaker 4: Well, I mean, I can refer you to what the
Speaker 4: analysts has said, which is, look, if you're out there
Speaker 4: looking for external customers for your factories, your factories have
Speaker 4: to be showing their best side. They have to be
Speaker 4: operating at full of you know, best they can. They
Speaker 4: have to be working, you know, a maximum efficiency. If
Speaker 4: that's not the case, then that obviously hurts your you know,
Speaker 4: your sales pitch to outside customers.
Speaker 5: Intil Intel.
Speaker 2: We also discussed in the context of Intel his efforts
Speaker 2: with the coming fourteen A process right, and I found
Speaker 2: lit Bhutan's candor quite interesting. We tried to push them
Speaker 2: and say where are the customers and his answer was
Speaker 2: until I have a volume commitment on that, I'm not
Speaker 2: going to tell you anything. Just give us a bit
Speaker 2: more of how he tried to explain that foundry business
Speaker 2: in its progress.
Speaker 4: Yeah, I mean, this is him sticking to a line
Speaker 4: of kind of reasoning which I think resonated initially with
Speaker 4: shareholders and then caused a little bit of concern. Basically,
Speaker 4: he's saying, look, this is really expensive building these factories
Speaker 4: and equipping them past the fortune I am not going
Speaker 4: to do that until my customers say, here's an order
Speaker 4: that I can then turn into cash that pays for
Speaker 4: these factories. So that's a very logical, sort of down
Speaker 4: to earth, pragmatic sort of viewpoint, saying that he'll know
Speaker 4: for sure whether he's going to get concrete orders or
Speaker 4: not in the second half of this year and into
Speaker 4: the first half of net. So from the Wall Street perspective,
Speaker 4: that's like we're still in the kind of wait and
Speaker 4: see period in terms of whether Intel can become this
Speaker 4: kind of boundary this rival to TSMC.
Speaker 3: Wonder how the administration is viewing it as a key
Speaker 3: stakeholder in Intel in king great roundup, Thank you, Let's
Speaker 3: turn attuch to a Bloomberg exclusive. Now, Ali Baba ten
Speaker 3: Fighte Dance were then now allowed to prepare orders for
Speaker 3: Invideo's h two hundred AI chips, suggesting that Beijing is
Speaker 3: prioritizing the needs of the major Chinese hyperscalers again close
Speaker 3: to formally approving imports of essential AI components. Let's get
Speaker 3: to bloomog Tech executive editor Peter Elstrom, it's another stepping
Speaker 3: stone that hints Beijing I'll.
Speaker 6: Let them in.
Speaker 5: Yeah, this is a very closely watched drama.
Speaker 7: Of course, Nvidia used to sell lots of AI chips
Speaker 7: into the China market, but Washington and Beijing have been
Speaker 7: battled over exactly what kind of chips are going to
Speaker 7: be sold and what kind of volume. Washington has stopped
Speaker 7: the most advanced chips from go into the market, but
Speaker 7: the Trump administration did approve these age two hundred chips
Speaker 7: to be sold into the market. It wasn't clear whether
Speaker 7: Beijing was going to let its tech companies buy these chips.
Speaker 7: Now now what we're hearing from sources is that they
Speaker 7: have given the go ahead for the key companies you mentioned, Alibaba,
Speaker 7: ten Sent and byte Dance to prepare their orders, to
Speaker 7: tell them how much they want to buy from Nvidia,
Speaker 7: and then they're going to make decisions about when exactly
Speaker 7: this is going to happen. It's going to come with
Speaker 7: some caveats. They do still want to build up the
Speaker 7: domestic industry. They want these companies to also purchase from
Speaker 7: some of the domestic players, which include Wallwe technologies and
Speaker 7: camera con as we've talked about in the show a
Speaker 7: few times before. But it looks like they're going to
Speaker 7: be able to go ahead with those Age two hundreds.
Speaker 2: Yeah, those caveats also include restrictions, right that on both
Speaker 2: sides of this negotiation, there is agreement that the Chinese
Speaker 2: officials that we're hearing from talking about there will not
Speaker 2: be access when it comes to sensitive industries things like that.
Speaker 5: Just break that down, Peter. Yeah, they're concerned.
Speaker 7: They've said this before with the chips and now the
Speaker 7: two hundred chips.
Speaker 5: They're concerned.
Speaker 7: They don't want invidious chips going into sensitive areas like
Speaker 7: the military, like state on enterprises or government agencies for
Speaker 7: that case. So the market's going to be narrower than
Speaker 7: what it would be otherwise. But in Vidia used to again,
Speaker 7: used to sell a lot of chips into this market,
Speaker 7: used to be very very important. Jensen Wong has talked
Speaker 7: about how important it is, and they know that there's
Speaker 7: demand there for these chips, so he'd like to get
Speaker 7: back in. And I think this is not the Age
Speaker 7: two hundreds are not the end of the game here.
Speaker 7: We know that some people in the Trump administration included
Speaker 7: David Sachs have advocated for selling even more in video
Speaker 7: chips into China, and so we think that if this
Speaker 7: is going to move ahead, it's more symbolic of what
Speaker 7: the broader potential is in China for in video if
Speaker 7: they can make this happen.
Speaker 2: Bobergs, Peter Elstrom, thank you very much. Let's get more
Speaker 2: on that story. Joanne Feenie, partner and portfolio manager and
Speaker 2: Advisors Capital Management, long time.
Speaker 5: Coverage of the chip industry.
Speaker 2: Now on the buy side of the table, Joe, and
Speaker 2: you yourself owned some Nvidia. I feel like we've discussed
Speaker 2: different shades of this story many times over on this
Speaker 2: program with you. But at this point, at this juncture,
Speaker 2: and based on the reporting that Peter just gave us,
Speaker 2: do you start to model in some upside for Nvidia
Speaker 2: in the China market and thus think about your positioning
Speaker 2: on that stock.
Speaker 8: Yeah, clearly it's a good sign, right, and it's been
Speaker 8: long and coming, but you know, the size of the
Speaker 8: market opportunity is still hard to define. You know, clearly
Speaker 8: China wants to encourage its own semiconductor industry to catch
Speaker 8: up to some degree to in Vidia.
Speaker 9: But you know, it's a good sign. It's incrementally positive.
Speaker 8: We're not really going to model it in at this
Speaker 8: point because it's hard to know how large it could be. Nevertheless,
Speaker 8: a positive sign opening up that market, and also just
Speaker 8: to you know, continue to make sure, as Jensen Wang
Speaker 8: has put it, that AI applications are built on the
Speaker 8: US technology stat primarily, and because we have the leading
Speaker 8: ships that's appropriate.
Speaker 2: As Jensen one has put it, it's a fifty billion
Speaker 2: dollars per year market opportunity if they can go back
Speaker 2: to China, which is currently a net zero assumption. That
Speaker 2: last bit you said, I really want the joe An
Speaker 2: Foinie take on this. In the White House, the consideration
Speaker 2: was if we don't sell any technology deprecated or otherwise
Speaker 2: into China, then there will be a vacuum which the
Speaker 2: Chinese domestic players will occupy. But there is still this
Speaker 2: national security and competition standpoint. Where do you stand on that?
Speaker 8: Yeah, I'm not a military expert, ed, so I'm going
Speaker 8: to refrain from from talking really about how this could
Speaker 8: change the military, you.
Speaker 9: Know, competitive situation.
Speaker 8: You know, if we don't sell these chips, if Nvidia
Speaker 8: doesn't get to tell these sell these ships, China will
Speaker 8: develop them and they've worked around the you know, less
Speaker 8: capability of their own chips by redesigning you know, inside
Speaker 8: the rats to try to save energy, to try to.
Speaker 9: Boost through put it. And they'll continue to do that,
Speaker 9: and they'll do that in AI applications.
Speaker 8: They are going to do that in military applications, whether
Speaker 8: or not they can use those Nvidia chips there. So,
Speaker 8: you know, I think that the opportunity for US to
Speaker 8: have more sort of input and potential control over the
Speaker 8: future of this AI technology is really a worthwhile goal.
Speaker 3: The administration looking at h two hundreds, the administration probably
Speaker 3: looking at the share fall of Intel today, Joanne, take
Speaker 3: us to your thoughts on the manufacturing well, lackluster performance
Speaker 3: thus far from the company, it seems.
Speaker 9: Yeah, I mean until Caroline has certainly had its problems.
Speaker 8: I mean they went down what is retrospect, the wrong
Speaker 8: path in terms of the process technology. And now they've
Speaker 8: been trying to fix that since Pat Gelsinger was put
Speaker 8: in charge and now with Liptu Bhutan, and clearly we're
Speaker 8: seeing that it's more challenging than perhaps investors recognize.
Speaker 9: And I think investors really got ahead of the story.
Speaker 8: You know, they saw the US government come in and
Speaker 8: take a stake and they felt like, you know, that
Speaker 8: put a floor on the stock price to so degree.
Speaker 8: But you know, Intel is in a situation with you know,
Speaker 8: two things coming out on that report. One, they're gross margins.
Speaker 8: You know, you know they beat a little bit, but
Speaker 8: they beat. It's thirty seven point nine percent. I mean, Intel,
Speaker 8: right should have gross margins above sixty percent, given that
Speaker 8: they're one of two suppliers in the PC business.
Speaker 5: Well, Joe, let me.
Speaker 2: Just say whether they should or not, Whether they should
Speaker 2: or not. Historically they had margins of sixty percent, just
Speaker 2: to jump in on that point.
Speaker 8: That's a very good clarification, at very good point. Should
Speaker 8: in terms of market structure. But now you know they're
Speaker 8: trying to play in the AI market and they're well
Speaker 8: behind and now in videos the leaders, So you know,
Speaker 8: look at invideos margins clearly right for competition to.
Speaker 9: Come in there.
Speaker 8: But you know, with their outlook showing that they've sold
Speaker 8: out of their server CPUs, they're going to have a
Speaker 8: weak quarter this quarter. The yields are lower than they
Speaker 8: would like, and it just you know, people look at
Speaker 8: that gross margin and they see it as a really
Speaker 8: important signal of how much progress they're making in a
Speaker 8: complex manufacturing process. And clearly they're not making as much
Speaker 8: progress as investors will like and as the company would like.
Speaker 8: And so I think it's a particularly risky bed. We
Speaker 8: have not owned Intel for clients. We think that the
Speaker 8: opportunity cost is just too high. You can own a Broadcom,
Speaker 8: which we've owned for you know, eleven years for clients.
Speaker 8: You can own Nvidia, which we've owned for clients since
Speaker 8: twenty twenty two. These are clearly market leaders, and they've
Speaker 8: ironed out the design challenges and through their partners to
Speaker 8: like TSMC, the manufacturing challenges, and so they're delivering. And
Speaker 8: Intel faces now are chicken and an egg problem on
Speaker 8: the fourteen A process.
Speaker 3: Go there on the foundry side there for Joanne, because
Speaker 3: the signals that maybe well, that side of the equation
Speaker 3: still needs more than just the government buying in to
Speaker 3: think that they're going to solidify any partners here and
Speaker 3: building and manufacturing for them.
Speaker 10: Yeah.
Speaker 9: Intel's tried to enter the foundery world.
Speaker 8: We've talked in the past about you know how challenging
Speaker 8: that is to move from producing your own ships to
Speaker 8: move to producing others. The design libraries and all that,
Speaker 8: but they fundamentally need the manufacturing process. And the problem
Speaker 8: that they face right now is that, on the one hand,
Speaker 8: they're saying, hey, we don't want to invest the cap
Speaker 8: x to build up this capacity until we have customers
Speaker 8: locked in. But customers aren't going to lock in unless
Speaker 8: they know they have a manufacturing process that works and
Speaker 8: that can deliver. Because you know, you're designing a product,
Speaker 8: you're designing it years out, and you have to know
Speaker 8: the supply will be there if you commit to a
Speaker 8: certain manufacturing partner.
Speaker 9: So it's a real chick out an egg problem.
Speaker 8: They might have to bet on, you know, on making
Speaker 8: it happen and being able to deliver the customers by
Speaker 8: getting that process up and running and showing that they
Speaker 8: can get yield up in volume even in advance of
Speaker 8: locking down some customers.
Speaker 9: So you know, it's almost a bet the company kind
Speaker 9: of problem.
Speaker 8: And that's why again, as an investor, we're not enthusiastic
Speaker 8: about Intel.
Speaker 9: The risk is simply too high.
Speaker 8: We don't find the current valuation compelling given that risk.
Speaker 8: We think there are better places to be and so
Speaker 8: we're gonna We're.
Speaker 9: Gonna stick with with where we are. For example, and
Speaker 9: am D.
Speaker 8: By the way, that recent result pretty clearly indicated that
Speaker 8: am D is continuing to gain share against Intel, likely
Speaker 8: both in server CPU and in PCCPU.
Speaker 3: Joanne Feeni with all the context Advisors Capital Management, thank
Speaker 3: you so much.
Speaker 6: Happy weekend. Now coming up, Tesla's.
Speaker 3: Robotaxi gets closer to fully autonomous reality is some vehicles
Speaker 3: in Austin feature no human safety monitors in the car.
Speaker 3: While on that next as a Roomberg technology roombog tech,
Speaker 3: so Tesla has begun offering robotaxi rides in a limited
Speaker 3: number of vehicles in Austin with no human safety driver
Speaker 3: behind the wheel.
Speaker 6: In a post on x CEO in a Musk when even.
Speaker 3: Further suggesting that cracking real world self driving technology could
Speaker 3: ultimately lead to artificial general intelligence, Thomas really unpack what
Speaker 3: this moment means for the future of autonomous technology. We're
Speaker 3: joined by Regina Klulo, Managing director of Populace.
Speaker 6: Regina brings more.
Speaker 3: Than a decade of hands on experience and transportation and mobility.
Speaker 3: Look your hold on PhD in transportation and energy systems.
Speaker 6: My team, we should listen to you. Is this a
Speaker 6: big feat?
Speaker 10: This is definitely a significant development it's another major player
Speaker 10: in the autonomous vehicle space, and it shows more confidence
Speaker 10: in the technology, but it's still pretty limited and it's
Speaker 10: definitely an experiment.
Speaker 5: It's an experiment, Regina. I'm just going to jump in.
Speaker 2: People on the Tesla side of the camp say, this
Speaker 2: is a notable moment because it's a first for a
Speaker 2: vision only based platform to be on public roads, not
Speaker 2: just with no one in the driver's seat, but no
Speaker 2: supervising attendant in the passenger seat either. People would also
Speaker 2: note that there were other restrictions on social media. For example,
Speaker 2: there were support vehicles from Tesla. It is alleged and
Speaker 2: claimed that said the vision only part, the distinction that
Speaker 2: Tesla's system relies only on cameras, whireas Weimo has a
Speaker 2: multi sensor suite. Interpretation of why that's significant, well, I.
Speaker 10: Think there are a couple of companies, including Zookes and Tesla,
Speaker 10: that are really designing vehicles that are intended to be
Speaker 10: purpose built for autonomous driving and for autonomous right hailing.
Speaker 10: So it is the significant development, and I think at
Speaker 10: the end of the day, what's great is that there
Speaker 10: are multiple players that are entering the market, which ultimately
Speaker 10: for cities is a good thing because it makes the
Speaker 10: regulatory landscape easier for them to manage.
Speaker 3: Regulatory landscape has not held back other competitors to this point.
Speaker 3: And when you think about a few a handful of
Speaker 3: Tesla's on the road and you compare that to a
Speaker 3: million rides or having per month already using weimo, and
Speaker 3: they're aiming it for a million per week, how much
Speaker 3: are we able to really say that Tessa's winning here
Speaker 3: or not.
Speaker 10: I think it's still very early days, but the landscape
Speaker 10: is moving much more quickly, especially over the last three years.
Speaker 10: You see these new players entering the market with commercial
Speaker 10: right hailing services, But I don't think that you know,
Speaker 10: it's clear that there's any one winner at this point
Speaker 10: in time. Although weimo is significantly ahead at the moment
Speaker 10: in terms of commercial right hailing, as you mentioned, they're
Speaker 10: estimating to reach a million rights per week by the
Speaker 10: end of the year, but it's still anyone's market to win,
Speaker 10: and it's exciting to see more players enter it.
Speaker 5: Yeah.
Speaker 2: In simple terms, people define Weimo being ahead by the
Speaker 2: number of cities it's deployed in without any human supervision
Speaker 2: in the car and charging affair to passengers. I'd love
Speaker 2: to talk about the human side of this though, right
Speaker 2: in your research at a number of academic institutions over
Speaker 2: the years, do we have the evidence yet that the
Speaker 2: general population feels ready to jump in a robo taxis
Speaker 2: their sort of chosen method of transfer.
Speaker 5: I think that.
Speaker 10: In San Francisco there's a lot of data to suggest
Speaker 10: that consumers do really feel comfortable utilizing Weimo and sort
Speaker 10: of segments of customers preferring Weimo and even being willing
Speaker 10: to pay more for that vehicle over let's say an
Speaker 10: Uber or Lyft. So I think that people are becoming
Speaker 10: very comfortable, very quickly with these vehicles, and we'll just
Speaker 10: continue to see that happen Regina.
Speaker 6: What's interesting is the global context.
Speaker 3: Because we saw actually shares of Uber and Lyft get
Speaker 3: hit by this announcement of Elo Musk, and in many
Speaker 3: ways they're already out there, not only partnering in Austin
Speaker 3: with Weimo like Uber, but they're also in China and
Speaker 3: we're seeing Beijing people hopping in those cars pretty actively.
Speaker 3: We're also seeing it in the Middle East as well,
Speaker 3: with we Ride and Uber out there trying things. How
Speaker 3: are you seeing globally the readiness of the consumer.
Speaker 10: I think that a lot of the global readiness is
Speaker 10: pretty accepting. We have a lot of other countries out
Speaker 10: there that we'll be willing to allow more vehicles and
Speaker 10: more operators to experiment, and then putting those vehicles out
Speaker 10: there for consumers to begin adopting allows them to move
Speaker 10: forward more quickly. So I think that, you know, at
Speaker 10: a global level, we're going to continue to see an
Speaker 10: acceleration of the adoption of those vehicles.
Speaker 2: Regina Klulo of Populous, Great to have you on the show,
Speaker 2: Thank you very much. Okay, So Apple's basically flat in
Speaker 2: the session, but actually it had a pretty rough start
Speaker 2: to the week. And believe it or not, this is
Speaker 2: a stock that's on track for its eighth straight weekly decline,
Speaker 2: the worst run of weekly declines going back to May
Speaker 2: of twenty twenty two.
Speaker 5: There is a lot in the news.
Speaker 2: Cycle with Apple, and a lot of it comes from Bloomberg.
Speaker 2: The company's hardware chief, John Turnas, has added one of
Speaker 2: the iPhone maker's most critical functions and prestigious responsibilities to
Speaker 2: his role overseeing the design teams. It's a new sign
Speaker 2: that Turnus is a leading contender to take over for
Speaker 2: CEO Tim Cook one day all according to our sources
Speaker 2: and the guy that broke the story, plumost Mark German
Speaker 2: is here introduce us to mister Turners. What does your
Speaker 2: reporting tell us about his new workload? And also that
Speaker 2: signal that he's climbing the ranks here.
Speaker 11: John Turnis has been Apple's Senior VP of Hardware Engineering
Speaker 11: since twenty twenty one. That means he runs all hardware
Speaker 11: development for essentially every Apple products. He's in charge of
Speaker 11: the iPhone, charge of the iPad, and charge of the Mac,
Speaker 11: now in charge of the Apple Watch, and he's been
Speaker 11: elevated to expand his role this year a couple times,
Speaker 11: taking like I said, full oversight of the Apple Watch,
Speaker 11: but also taking charge of Apple's AI robotics teams. Now
Speaker 11: very recently, Tim Cook put them in charge of overseeing
Speaker 11: Apple's design teams for both hardware and software. And no
Speaker 11: design is the look and feel of the products, what
Speaker 11: the interface looks like, what the icons look like, how
Speaker 11: the software works. Industrial design are things like the shapes
Speaker 11: of the devices, the colors, the weight in the field
Speaker 11: goes well beyond the engineering of making everything work. And
Speaker 11: like you said, design is one of the most critical
Speaker 11: and prestigious functions at Apple. It's really only been run
Speaker 11: by the most senior executives in the company's history, people
Speaker 11: like Johnny Ive, Steve Jobs himself, Tim Cook himself, and
Speaker 11: the COO Jeff Williams, who retired a few months ago.
Speaker 11: Now John Turnis adds to that list, and it's yet
Speaker 11: another strong indicator that he's being groomed for a larger
Speaker 11: role and is at the very top of the short
Speaker 11: list of front runners the potential Tim Cook's successors at
Speaker 11: one point when Cook ultimately does decide to retire.
Speaker 3: Mark What's interesting is how subtly this was done. And
Speaker 3: I'm sure that's because they don't want to aggravate too
Speaker 3: much the investor base, but also those also in the
Speaker 3: running talk about who else we could see being lined
Speaker 3: up in some way.
Speaker 11: This is a very strange setup Organizationally, the design teams
Speaker 11: are overseen by Turnis, but on paper they report to
Speaker 11: CEO Tim Cook. Various reasons why you want to do that.
Speaker 11: Apple previously announced that Cook would be running the design team,
Speaker 11: so you don't want to take that away from him
Speaker 11: publicly and undermine the CEO. You don't want to get
Speaker 11: into a debate about who's better suited to run design,
Speaker 11: whether that's an engineer or an operations person like Cook.
Speaker 11: In terms of other CEO candidates, or really only one
Speaker 11: other at this point, that's Sabby Khan, the chief operating officer.
Speaker 11: Other publications have thrown out names like Eddie Q, Greg Joswiak,
Speaker 11: Greg Federigi, Girdre Brian. Nothing I've heard points to any
Speaker 11: of them being CEO other than maybe in an emergency
Speaker 11: like scenario, it's really Turnus or the new COO, Sabby
Speaker 11: con Mark.
Speaker 2: We have ten seconds. What's the one product that Turnus
Speaker 2: is going to be zeroed in on this year?
Speaker 11: This year, it's got to be the foldable iPhone. This
Speaker 11: is going to be a potential growth driver for company
Speaker 11: revenue and we'll see him front and center for that
Speaker 11: in September.
Speaker 6: Max mon Gumman with all escapes. You so appreciate it.
Speaker 6: Welcome back to Blue meg Tech.
Speaker 3: Let's check in on these markets because we end the
Speaker 3: week on a high, but it's been a turbulant four
Speaker 3: days of trading, shortened week given the holiday on Monday,
Speaker 3: We're up five ten percent on the day on the Nasdaq.
Speaker 3: One hundred is you'll see more focus maybe post Davos
Speaker 3: on the future of AI and of technology. Bitcoin is
Speaker 3: up three tens percent, but look, it's still been hammered
Speaker 3: a little bit. We're sub ninety thousand dollars overall. I'm
Speaker 3: looking at some individual names and looking only one. Really
Speaker 3: do you want to be taking real attention to in
Speaker 3: terms of points and in terms of the absolute.
Speaker 6: Move, it's Intel. We're off by fifteen percent.
Speaker 3: Look, the context is it's up prior to today fifty
Speaker 3: percent on the month, on the year, and it had
Speaker 3: a rapid run up. But the manufacturing issues, the issues
Speaker 3: with basically yield on some of their chips and not
Speaker 3: managing to make the most of demand for aipcs, and
Speaker 3: indeed in CPUs.
Speaker 6: That's a letdown trying to investibate that investor base.
Speaker 5: Okay, some deal news.
Speaker 2: Capital One has agreed to purchase fintech startup Brex for
Speaker 2: five point one five billion dollars in a fifty to
Speaker 2: fifty cash and stock deal. It's the largest acquisition for
Speaker 2: the bank since its purchase of Discover, which closed in
Speaker 2: May of last year. Here to discuss is Pedro Francesci
Speaker 2: Rex CEO.
Speaker 5: Pedro Let's get into it.
Speaker 2: I mean, the obvious question to many last night was
Speaker 2: the timing. But five point one five billion dollars is
Speaker 2: a pretty steep discount to the valuation you raise money
Speaker 2: at in twenty twenty two, which was twelve billion dollars.
Speaker 2: What do you think that signals the timing and also
Speaker 2: the value you agreed?
Speaker 12: Yeah, thanks for having you. We're really excited about this news.
Speaker 12: And you know, this is a really special combination. First,
Speaker 12: it's as you mentioned, it's the largest bank fintech deal
Speaker 12: in history. And really the way we thought about this
Speaker 12: is really this unique one plus one equals three scenario.
Speaker 12: So of course at brex we build you know, corporate cards,
Speaker 12: expense management, banking products, bringing financial services and software together.
Speaker 12: And then Capital One is really the original fintech. They
Speaker 12: brought technology and data together for the first time and
Speaker 12: have been a huge source.
Speaker 5: Of inspiration for us.
Speaker 12: And as we saw as we started to think more
Speaker 12: about this together, we really saw this very unique combination
Speaker 12: of bringing rexist technology, product and platform with Capital One
Speaker 12: scale brand distribution and balance sheet and materially accelerate our
Speaker 12: go to market and our product development to a level
Speaker 12: that would be you know, amashed to a standalone private
Speaker 12: company or even a public company for that matter. So
Speaker 12: we saw this a massive opportunity to build it together,
Speaker 12: opportunity to build.
Speaker 2: But why was Capital One able to pay a more
Speaker 2: than fifty percent discount on your last private valuation.
Speaker 12: Yeah, So when we look into all the public market
Speaker 12: comps that that in the fintech space, they're mostly trading
Speaker 12: between eight, nine, ten, maybe eleven times, this acquisition is
Speaker 12: at a thirteen times multiple. So it's a huge premium
Speaker 12: to where all public market comps are today. And the reason,
Speaker 12: of course Capital One believes in this is because there
Speaker 12: is a massive growth opportunity. We really believe that we're
Speaker 12: here to build really the most important financial platform for
Speaker 12: businesses in the US. And you know, it's a very
Speaker 12: you know, two founder led companies coming in together. And
Speaker 12: the reason they're so excited and we're so excited about
Speaker 12: this is because of the obvious webside path that we
Speaker 12: have from here.
Speaker 3: But Pedro, it's not an upside to that previous valuation.
Speaker 3: And I hear you on the premium compared to where
Speaker 3: others trade on the day, But why not just stay
Speaker 3: private for longer? Why not build? Why not return to
Speaker 3: a twelve billion dollar valuation in the private markets.
Speaker 5: Yeah.
Speaker 12: So the thing that we learned is we had we
Speaker 12: did a lot of you know, twenty twenty one valuations.
Speaker 12: We're a very specific point in time and market. And
Speaker 12: one of the things that we believe for PREX is
Speaker 12: that the teams to see reality the best wins. And
Speaker 12: we like to run the company in a way that
Speaker 12: mirrors where everything eventually converts to you, which is public markets.
Speaker 12: And when we look from a public market lens into
Speaker 12: everything that we've done, we made a lot of decisions
Speaker 12: around the way we accelerate to growth over the past
Speaker 12: few years, went after the enterprise became a casual positive company,
Speaker 12: and this combination of factors, may this be a really
Speaker 12: special outcome. And we think that private companies that mirror
Speaker 12: themselves in a point in time valuation eventually forget that
Speaker 12: everything converges to public markets eventually. And when we compare
Speaker 12: the where brexast today with where a lot of peers
Speaker 12: have ipoed and where other companies on a private basis
Speaker 12: have been, we think this is a really exciting and
Speaker 12: different outcome. But the real reason behind it and the
Speaker 12: real reason I'm so excited for this next phase of
Speaker 12: REX is because this is the beginning of us building
Speaker 12: the most, the largest, and I think the most important
Speaker 12: platform for businesses. When you combine the scale, the balance sheet,
Speaker 12: the distribution, and the tech mindset that Capital one has
Speaker 12: with the product and the technology that we have at BREX.
Speaker 12: So really, at the end of the day, it's about
Speaker 12: building something bigger than what we could ever build as
Speaker 12: a standbone company.
Speaker 6: How will it change your trajectory? What will you build?
Speaker 6: Is it AI that gets infused? What more does this
Speaker 6: give you power to do?
Speaker 12: So just giving you two examples, so Capital one has
Speaker 12: a six billion dollar marketing budget. Brex has a fraction
Speaker 12: of data less than one percent of that today. Just
Speaker 12: imagine the distribution and the capability to go in and
Speaker 12: serve the millions of businesses in the US. Capital one
Speaker 12: also serves already millions of businesses today and all these
Speaker 12: businesses will benefit from the BREX product and technology that
Speaker 12: really helps the run their business in a much better way.
Speaker 12: And then when you're looking at the R and D
Speaker 12: side and AI to your point, Capital one has a
Speaker 12: six billion dollar again R and D budget as well,
Speaker 12: and when you combine this with the product roadmap, and
Speaker 12: the vision that we have at brex. We think we're
Speaker 12: going to accelerate this momentum tremendously and continue to build
Speaker 12: in a much seper trajectory than what we're able to
Speaker 12: do now, and the benefit of the end for customers
Speaker 12: will be, you know, a much better product, a much
Speaker 12: more robust, fraildnap and just accelerating air path compared to
Speaker 12: what we could ever do independently.
Speaker 3: Come back as you scale, Pedro Francisci is great to
Speaker 3: have you the brexits, I mean no, let's stick with
Speaker 3: other deal news because nearly a year after an initial
Speaker 3: deadline to sell TikTok Us has been bought by consortium.
Speaker 6: You know, it's led by Oracle On the social.
Speaker 3: Media President Trump thank the Chinese leaders using pin for quote.
Speaker 6: Working with us.
Speaker 3: Let's discuss the details been both Social media reporter Alexandra
Speaker 3: Levigne has been following what has been quite the journey.
Speaker 3: So the players involved talk us through who's going to
Speaker 3: have the ownership and how that ownership changes what us
Speaker 3: TikTok looks like.
Speaker 13: So we know that the folks that are all only
Speaker 13: going to be involved are going to be the three
Speaker 13: managing investors silver Lake, MGX, and Oracle, which already has
Speaker 13: this long standing relationship with TikTok. And then there are
Speaker 13: a combination of other investors that are already that have
Speaker 13: long been long time by Dan's affiliates. I think that
Speaker 13: the most remarkable piece of this is just the fact
Speaker 13: that it's spanned three presidencies more than half a decade.
Speaker 13: It's been almost seven years since olives started and two
Speaker 13: hundred million people, which is more than half a country,
Speaker 13: are now on the platform, and it has grown so
Speaker 13: considerably since all of this has been happening.
Speaker 2: I think it's also important to kind of get to
Speaker 2: know some of the people behind this new entity. They
Speaker 2: have a leader who was a relatively high level executive
Speaker 2: at the larger n seat to tell us about him.
Speaker 13: Yeah, So the new CEO of this new TikTok venture
Speaker 13: is Adam Presser. Adam Presser has been viewed as a
Speaker 13: contender for the top job. He's been viewed as a
Speaker 13: very influential insider for many years. He has an entertainment background,
Speaker 13: not a political background. But he came from WarnerMedia and
Speaker 13: he joined TikTok in twenty twenty two and was since
Speaker 13: then really really close to Show to you reporting directly
Speaker 13: into to Show who has been the CEO. He's taken
Speaker 13: increasing responsibility over the last few years and he's really
Speaker 13: like just below the top of by Dance Global, and
Speaker 13: so this was a very obvious choice. And he has
Speaker 13: also been leading TikTok Us Data Security it's out of
Speaker 13: protection arm that is now basically being adapted into this
Speaker 13: new joint venture, you know, over the last year.
Speaker 2: Or so Bloomberg z Alex slaviine with the reporting, Thank
Speaker 2: you very much. Coming up, the age of unicorns is
Speaker 2: behind us. Is the number of Decca horns and hecticorns grows.
Speaker 2: Peter Singlehurst, so Baby Gifford joins us to talk about
Speaker 2: skyrocketing private valuations.
Speaker 5: That's next. This is Bloomberg tech.
Speaker 3: Companies. They're staying private for longer. Valuations are hitting new highs.
Speaker 3: The appetite to invest in private growth equity is expanding.
Speaker 3: Just think about some of these names, SpaceX, Data, Bricks
Speaker 3: and Real. Peter Singlehurst's head of private companies are Bailey GIFD,
Speaker 3: which is an investor in all three of those really
Speaker 3: hot come you even call them startups anymore? He joins
Speaker 3: us now Peter Bailey GIFFD has been at this a
Speaker 3: long time, since twenty twelve, allocating billions.
Speaker 6: Is this sustainable, this extent.
Speaker 3: That companies are staying private for longer, and will the
Speaker 3: wall of money still come in?
Speaker 14: I think what we've seen is a structural change in
Speaker 14: how companies capitalize themselves. This is driven by some very
Speaker 14: enduring factors such as regulation. Sarbaine's oxously made it more
Speaker 14: difficult to be public, and aspects of the Jobs Acts
Speaker 14: made it easier to stay private. But I think there's
Speaker 14: also been a cultural change amongst companies. I think founders
Speaker 14: today they realize that you can build a better, more
Speaker 14: enduring business by staying private for longer, because you can
Speaker 14: be more focused on the fundamentals of business building. And
Speaker 14: I think that has led to an irreversal change in
Speaker 14: companies staying private for longer, and as a result, we're
Speaker 14: seeing exceptional, world class businesses of real scale in the
Speaker 14: private markets.
Speaker 3: And now twenty twenty six can be quite the unlock.
Speaker 3: We can have a one and a half trillion dollar
Speaker 3: IPO of SpaceX if they live up to their own hype,
Speaker 3: which you're in, we could have Anthropics been talked of
Speaker 3: for twenty twenty six. Even open AI's been talked off
Speaker 3: for twenty twenty six. Vita is twenty twenty six going.
Speaker 6: To be the year?
Speaker 3: And how do you think about some of your holdings
Speaker 3: ahead of that as to whether you want to be
Speaker 3: holding onto them in significant size.
Speaker 14: It is unquestionable that many of these companies are of
Speaker 14: the scale and maturity, solidity, operational robustness to be public businesses,
Speaker 14: and I think the real question is when do they
Speaker 14: choose to enter the public market. I think it's also
Speaker 14: pretty clear that public market investors are going to have
Speaker 14: real appetite for these businesses.
Speaker 15: I think there are really two questions, though, at what price?
Speaker 14: Are what valuations will public market investors be willing to
Speaker 14: commit significant amounts of cattle to these businesses? And how
Speaker 14: do the public markets digest IPOs of this scale? The
Speaker 14: largest tech IPO in history was Ali Barbera in twenty fourteen.
Speaker 15: That was a mere twenty five billion dollar IPO.
Speaker 14: If SpaceX witt lists ten percent of itself, even at
Speaker 14: its current valuation, you'd be looking at an eighty billion
Speaker 14: dollar valuation. So I think we're in slightly uncharted waters
Speaker 14: with regards to the scale of these IPOs Here at
Speaker 14: Bailey Gifford, we keep our public and private growth equity
Speaker 14: franchises tightly integrated. And when we own a company that
Speaker 14: comes to the public markets, if our public teams decide
Speaker 14: to buy that company, that's based on their own decision.
Speaker 14: They have to make the right decisions for their public
Speaker 14: market clients. We can potentially become much much owners of
Speaker 14: these businesses and own them for a really long time
Speaker 14: into the pub markets.
Speaker 15: Long term ism is in our DNA as an organization.
Speaker 14: We've been doing growth equity investing for one hundred and
Speaker 14: eighteen years, right, We've been doing it in private markets
Speaker 14: for about fourteen years, and we have really been in
Speaker 14: this part of the private markets, these large growth stage
Speaker 14: private businesses for as long as this asset class has existed.
Speaker 2: That those names have not been one hundred percent liquid.
Speaker 2: The secondary market has been fascinating for transparency in context.
Speaker 2: You know, Belly Gifford came in for criticism by Cyber
Speaker 2: Capital Management, right a hedge fund park that context. But
Speaker 2: is the manager on the private side, how do you
Speaker 2: balance that the timing of maybe trimming or taking advantage
Speaker 2: of liquidity moment tender or otherwise or not holding on
Speaker 2: to it and growing.
Speaker 14: I think that's a really interesting observation edin that that
Speaker 14: first wave of company staying private for longer I would
Speaker 14: say up to the twenty fifteen stage was driven by
Speaker 14: the privileged and of primary capital to fund companies growth
Speaker 14: in the private markets. What's led to these megacap private
Speaker 14: companies is that we're seeing more secondary market transactions happening,
Speaker 14: meaning that secondary market requirements can be solved whilst companies
Speaker 14: remain private. We've seen that in the likes of SpaceX,
Speaker 14: We've seen that in the likes of Data Bricks in
Speaker 14: by Dance in Stripe, and that is really enabling companies to.
Speaker 15: Put off these IPOs for a really, really long time.
Speaker 14: Our job is to manage portfolios and selectively, we will
Speaker 14: occasionally look to trim our positions in private markets if
Speaker 14: we're wanting to realize some of those gains, either to
Speaker 14: recycle into new new holdings or distribute returns to our
Speaker 14: limited partners.
Speaker 2: I'm really interested in how strong and influential feel Bailey
Speaker 2: gift it is, you know, with respect, Peter, I've broken
Speaker 2: a lot of news right over the years on SpaceX
Speaker 2: and or whatever. But the composition of the cap table
Speaker 2: like SpaceX, you've basically got founder's fund fidelity in Google,
Speaker 2: not necessarily in that order. And like all late stage
Speaker 2: growth rounds pre IPO, the crossover investors want to come in,
Speaker 2: they want to anchor a future IPO. Do you have
Speaker 2: influence on the management at SpaceX? Do you try and
Speaker 2: be constructive operationally in working with them in the direction
Speaker 2: they want to take the company.
Speaker 14: So we try to focus our value add capabilities on
Speaker 14: the things which are particularly pertinent to growth stage companies.
Speaker 15: We're not trying to do venture capital.
Speaker 14: We're trying to do growth equity investing, and that means
Speaker 14: the ways in which we have to influence companies need
Speaker 14: to be designed to the growth stage. So, for instance,
Speaker 14: we will often play a role in helping our companies
Speaker 14: shape governance frameworks transitioning to independent led boards as they
Speaker 14: think about becoming public the public.
Speaker 15: Markets as well.
Speaker 14: We've been for one hundred years and we bring that
Speaker 14: expertise in helping our portfolio companies get ready for being
Speaker 14: a public business. But that's not something that we try
Speaker 14: to do six months before come and it becomes public.
Speaker 14: We try to do that in the years leading up
Speaker 14: to being a public business.
Speaker 3: So when you're looking at an Anthropic, for example, and
Speaker 3: there are now there are actually more companies analysts at
Speaker 3: banks now analyzing private companies because they're so huge. And
Speaker 3: one of the analysis really coming from JB. Morgan, for example,
Speaker 3: is that the premium pricing that Anthropic has might start
Speaker 3: to be hit by the level of competition in the enterprise.
Speaker 3: Is that something you steer a company on or something
Speaker 3: that you agree with.
Speaker 14: Look, I think that when we're investing in a company
Speaker 14: like Anthropic, fundamentally, what we're trying to do is determined
Speaker 14: not just how large the revenue base can be. We're
Speaker 14: trying to determine how much of that can flow down
Speaker 14: profit and how large that profit can be relative to
Speaker 14: return on equacy. So of course we're trying to understand pricing,
Speaker 14: power dynamics, we're trying to understand margin structures, and we're
Speaker 14: trying to understand capital intensity and the returns that can
Speaker 14: be earned on capital. Clearly, the AI markets are pretty
Speaker 14: hot at the moment. We think whenever you have a market,
Speaker 14: there will be a tiny number of exceptional companies. And
Speaker 14: so we own Anthropic, we own data bricks, but we're
Speaker 14: not an AI find We're trying to find the best
Speaker 14: growth companies wherever we can find them, and often you
Speaker 14: find them in areas where people aren't looking.
Speaker 2: Peter, I wish we could do thirty minutes with you.
Speaker 2: We can't. Very simply, things have changed. You have retail
Speaker 2: investors coming in via these big SPVs, pension funds I
Speaker 2: talked about with SpaceX and then basically golf sovereign money.
Speaker 2: How is that changing the market for you? And again
Speaker 2: let's go back to valuations in that context.
Speaker 14: I think the truth is private markets are not democratic markets,
Speaker 14: so companies still get to choose their investors, and companies
Speaker 14: will still anchor towards we'll steer towards value added partners
Speaker 14: and partners who they believe will be with them for
Speaker 14: the long term and can support them. But I think
Speaker 14: it's really important to point out that the demand and
Speaker 14: appetite for these kind of large, late stage growth companies
Speaker 14: is very rational. To give you one very tangible example,
Speaker 14: Tesla went public in twenty ten to two billion dollar evaluation.
Speaker 14: Today SpaceX is still private, valued at eight hundred billion dollars,
Speaker 14: so there's a four hundred x difference there that historically
Speaker 14: the public markets have access to and today that growth
Speaker 14: is happening in the private markets. So I think it's
Speaker 14: perfectly right that people are wanting to get access to
Speaker 14: these companies. And I guess the journey that we've been
Speaker 14: on over the last fourteen years has been helping our
Speaker 14: clients maintain their exposure to the growth of these world
Speaker 14: beating companies despite them remaining private for longer.
Speaker 2: Peter Singlehurst, head of private Companies, that they Gifford, really
Speaker 2: grateful for your time on Bloomberg Tech.
Speaker 5: Thank you very much.
Speaker 2: Amazon's preparing to let go of thousands more corporate employees.
Speaker 2: According to sources, the company plans to begin terminations as
Speaker 2: soon as next week. This comes just a few months
Speaker 2: after Amazon announced it was cutting as many as fourteen
Speaker 2: thousand rolls. The layoffs could affect the company's nearly three
Speaker 2: hundred and fifty thousand corporate personnel.
Speaker 3: OK one to watch, of course, because meanwhile Amazon has
Speaker 3: confirmed its Jew release earnings and the date is going
Speaker 3: to be Thursday, February the fifth, along with a whole
Speaker 3: host of other megacap names that a Jew in the
Speaker 3: next week or so. Equity spporter run Vasilica joins us
Speaker 3: now as we embrace ourselves.
Speaker 6: For what remamber us. It will call the fire hose.
Speaker 3: So are we prepping for good underlying fundamentals this time?
Speaker 16: Fundamentals probably yes. A lot of growth metrics remain very strong,
Speaker 16: much stronger than other sectors of the market. The question is,
Speaker 16: because growth is going to be slower than it was
Speaker 16: last year, is there enough jew to keep pushing these
Speaker 16: megacap tech stocks higher. It does seem like so far
Speaker 16: this year cinemas has really moved to other parts of
Speaker 16: the market. There's been rotations towards sickles cyclical sectors. There's
Speaker 16: been favoring within tech of companies like sand Disk and Micron,
Speaker 16: the memory and storage companies. There's been some changes in
Speaker 16: market leadership and momentum. But I do think people are
Speaker 16: expecting some pretty strong numbers out of the megacaps.
Speaker 2: Of those megacaps and of the different data sets you try.
Speaker 2: What gets from VLAs sellica excited? What is the kind
Speaker 2: of key thing that you'll be scanning at your desk
Speaker 2: next week?
Speaker 16: Well, I think a major focus is going to be
Speaker 16: how much these companies continue to spend on capex, especially
Speaker 16: when it comes to AI, and furthermore, the kinds of
Speaker 16: returns they're seeing on this. If people start giving more
Speaker 16: pronounced guideposts to the kinds of returns they're seeing, how
Speaker 16: much they're able to monetize all this AI related spending.
Speaker 16: I think all of that is going to go a
Speaker 16: long way to sort of dictating sentiment towards AI over
Speaker 16: the coming months. When it comes to Apple, a little
Speaker 16: bit of a unique situation there, the real focus is
Speaker 16: going to be how much memory chip prices have increased
Speaker 16: in recent months. If they indicate that that's going to
Speaker 16: be a real headwind to their margins or their overall growth,
Speaker 16: that's going to be something to watch there.
Speaker 3: And that was something we thinking about with Intel and itself.
Speaker 3: The valuation got crazy more than TSMC. Briefly, Ryan, where
Speaker 3: do we stand on valuations?
Speaker 16: It does seem like a lot of people feel like
Speaker 16: Intel's valuation got kind of ahead of itself. I think
Speaker 16: the stop rose about one hundred and eighty percent off
Speaker 16: of a low hit last year. That's a very steep
Speaker 16: move for a company of this type, especially one that's
Speaker 16: undergoing this sort of really fundamental and dramatic transformation. There's
Speaker 16: a lot of skepticism still about how well they're going
Speaker 16: to be able to get their foundry business kind of
Speaker 16: up and running and able to compete with some of
Speaker 16: the bigger players in the market. So very much to
Speaker 16: show me story, a turnaround story that remains in progress,
Speaker 16: and I think a lot of people just looked at
Speaker 16: how much it moved since a lot of those moves.
Speaker 5: Kind of came on a limited news bloomas Ryan for Seneca.
Speaker 5: Thank you very much. That does it.
Speaker 2: For the addition of Bloomberg Tech, check out the pod.
Speaker 2: This is Bloomberg Tech.